I just want to make sure I’m the first to congratulate the Wall Street Journal on its shocking discovery
of a correlation between higher prices and lower demand. And, while I’m no economist,
I’d like to humbly propose that the WSJ call its discovery something like, “The Demand Curve.” If this
doesn’t win the newspaper a Pulitzer, I have one more suggestion: an even more radically
new article on how a round object fastened to an axle can work as something
called… a wheel.

Apologies for the snark, but where else but in publishing could a notion like
“higher prices lead to lower revenues” even be controversial, let alone newsworthy?
But the publishing industry is notoriously special, and Joe has been beating this
drum for years. Five years ago,
he wrote:

Naturally, people would rather pay less for
something than more. And in a digital world, like we’re rapidly becoming, consumers
have shown consistently in other forms of media that they place less value on downloads
than on physical products.

So what is truly the value of ebooks? Is it
free? Or is it the publisher’s price, which seems inflated, and which in the agency
model gives them 52.5% of the list price of an ebook for doing nothing more than
providing a cover, editing, and putting it up on Amazon?

If an ebook is free, the author gets screwed.

If an ebook is priced high, it won’t sell a
lot of copies, and the author gets screwed.

If an ebook sells for a small amount of money,
the author makes 17.5% of the list price. That also seems like the author is getting
screwed.

Publishers are currently talking about going
50/50 with authors [BE note: hah, this was five years ago, the talk never ends does
it?], so an author will make 35% of the list price. But it’s still the price the
publisher sets, which is inflated, which will lead to piracy.

By setting the price, the publisher is pricing
ebooks so they won’t sell well, and then taking 35% of what little money will come
in.

Joe has also pointed
out many times that authors
will be the ones who kill legacy publishing, because they’ll go elsewhere as
they figure out the New York Big Five’s pricing strategy is costing them money.
Though whether this is Big-Five-Death-By-Authors or Big-Five-Death-By-Suicide is
an interesting philosophical question.

Anyway, back to the Wall
Street Journal’s big discovery. The headline itself—again, E-Book Sales Fall After New Amazon Contracts: Prices
Rise, but Revenue Takes a Hit—is interesting. The way it’s written, you might think
it was Amazon that caused the high prices that produced that shocking revenue hit.
In fact, Amazon has consistently tried to price ebook prices lower, even publicly
explaining last year why everyone—authors, publishers, and retailers—makes more
money from lower ebook prices. Higher so-called “agency” prices have been forced
on Amazon by the Big Five, and were at the heart of the price-fixing conspiracy
New York and Apple engaged in to keep ebook prices high.

And that subtitle is amusing, too. Prices rise, BUT revenue takes a hit? How
about AND takes a hit? Or THEREFORE takes a hit?

I can’t help it. It’s too much. The Wall
Street Journal—one of the world’s leading business newspapers—doesn’t seem to
understand, or even know the existence of, an Econ 101 concept as basic as this:

In economics, the demand curve is the graph
depicting the relationship between the price of a certain commodity and the amount
of it that consumers are willing and able to purchase at that given price.

What is it about publishing that makes otherwise intelligent,
educated people lose sight of even the most axiomatic things? One day, someone’s
going to write a dissertation on that topic.

Publishing industry
analyst Mike Shatzkin provides this helpful quote: “Unfortunately, it may be that
consumers aren’t happy with the higher prices.” Okay, I admit that my first thought
was, “Those pesky consumers, always insisting on decent value for their money! If
we could just figure out a way to keep ‘em happy about coughing up $25 a book, we’d
all be in clover!”

And then I thought,
“Unfortunate for whom?” Because there’s demonstrably more
money for everyone in lower priced ebooks. But wait, here’s a clue:

“Publishers said
the current pricing model involves some sacrifice but they felt it was worth it
to keep Amazon in check.”

Always interesting
when someone casually reveals his true motives. Though this one might have been
stated more clearly as, “Publishers said sodomizing readers was worth it to keep
Amazon in check. A Big Five spokesman added, ‘Sorry, readers, we know it hurts but
it’s for the greater good. And by ‘greater good,’ I mean the good of the Big Five,
who are above all else intent
on preserving the problem for which we are the solution.’”

And here’s another
clue: “What’s more, they have noticed a bump in sales of physical books that is
possibly related to the higher price of digital books.”

I also love how
the cripplingly high prices the Big Five has fought for are now described as “the
Amazon deals” and “the Amazon pacts” (“pact” is such a great word. The west has
a North Atlantic Treaty Organization. Only Communists have things like a Warsaw
Pact. We have factions, they have tribes; we have detention centers, they have gulags;
we might build a security fence but never a Berlin Wall...wait, sorry, I know I’m
digressing but propagandistic language is endlessly fascinating to me. Remember,
It’s
Just a Leak!).

Why is the Wall Street Journal trying to hang around
Amazon’s neck a money-losing price structure dictated by the Big Five? Because it’s
bad. And if it’s bad, and it’s happening in publishing, it
must be Amazon’s fault. Quod erat demonstrandum.

Lowballing: “a
per unit price that maximizes overall revenue.” I guess it’s time to update the
dictionary.

“Hachette cited
fewer hot titles and the implementation of its Amazon deal as reasons that e-books
fell to 24% of its U.S. net trade sales in the first half of 2015, from 29% a year
earlier.”

I think this would
read a little more clearly as “Hachette cited fewer hot titles and the implementation
of THE PRICING STRUCTURE THE BIG FIVE INSISTED ON as reasons that e-books fell to
24% of its U.S. net trade sales in the first half of 2015, from 29% a year earlier.”

Nah, that’s crazy
talk. If there’s a problem, it must be The Amazon Deal Pact that caused it.

And this: “Pricing
e-books is a Goldilocks problem for the book giants: For years they worried that
consumer prices were too low, and now they are seeing the disadvantages of bumped-up
prices.”

“To figure out
how to set prices, a team of data specialists at Macmillan’s Manhattan offices in
the Flat Iron building sifts through a database of 74 million transactions looking
for trends.”

Oooh, sounds impressive.
But it occurs to me the crack Macmillan Team of Data Specialists could have saved
themselves some time, and Macmillan some badly needed revenue lost due to high
ebook prices, if they had just read Amazon’s
announcement about this a year or so ago, or Joe’s post from
five years ago, or if they had at any point just used the Google to search for
something called the Demand
Curve…

“Amazon was willing
to buy a title for $14.99 and sell it for $9.99, taking a loss to grab market share
and encourage adoption of its Kindle e-reader.”

It’s amazing that
someone could write this article and describe the strategy as “grab” market share,
rather than as, I don’t know, “grow” market share. Is Jeff Trachtenberg psychic?
Was he in the meeting rooms where Amazon devised its “grab” strategy? Serious question,
Jeff: on what are you basing this assertion? And why do you not at least consider
the entirely logical—and substantially better supported by common sense and data—possibility
that lower prices don’t necessarily cannibalize a market for the benefit of one,
but might instead grow that market to the benefit
of all?

“Publishers worried
that such discounting kept Apple Inc. and Google Inc. from emerging as competitors,
as those companies might not want to lose money on e-books.”

This would read
better as “The Big Five didn’t think everyone would agree to subsidize the Big Five’s
high-price, low-volume, paper-first strategy.”

“Apple, which
denies wrongdoing, was found liable in a civil case and subsequently lost an appeal
in June.”

Ah, the little
professional courtesies oligarchs extend each other. After all, it’s always relevant
to note that the convicted defendant continues to deny wrongdoing. Plus it was just
a “civil” case (I’m not even sure this terminology is accurate. Does the government
bring civil cases prosecuted under US criminal laws?), which doesn’t sound all that
bad.

In other Wall Street Journal news, “Chester Frot,
who denies wrongdoing, was found guilty of burglary and arson and subsequently lost
an appeal in June. You can reach him by mail for the next twenty years at San Quentin
Correctional Facility.”

“Publisher e-book
sales have been stagnating since 2013, when they fell 2.5%…”

It’s journalistically
negligent, or willfully propagandistic, to say this without clarifying that you’re
talking specifically about legacy publishers. And without pointing out that in the
same timeframe self-published ebook sales have
been exploding. If you don’t understand this point, you can’t understand what’s
really going on in publishing. Which means either that Trachtenberg himself—the
guy who writes these articles—doesn’t understand what’s going on in publishing,
or that he doesn’t want his readers to.

“One high-level
publishing executive disputed that the Amazon pacts are behind the e-book sales
decline. ‘This is a title-driven business,’ he added. ‘If you have a good book, price
isn’t an issue.’”

Did Trachtenberg
grant this publishing exec pernicious
anonymity because the executive didn’t want to be ridiculed for saying something
so stupid? Did Trachtenberg ask for anything like, I don’t know, supporting data
before agreeing to publish an anonymous quote that violates the laws of Econ 101,
all available data, and even common sense?

If a book is “good,”
whatever that means, price isn’t an issue? Okay, anonymous publishing executive,
why aren’t you charging a hundred dollars for your “good” books? You’d be making
bank! Could it be that books are a little more fungible than all that? That consumers
find books fungible not just with each other, but with other forms of entertainment,
as well, meaning that you can very easily suppress sales of a book with a non-issue
high price? In fact, it seems you can even suppress sales of an entire market.
Bravo!

And then, almost
as an aside, in the second-to-last paragraph: “Amazon says e-book sales in its Kindle
store—which encompasses a host of titles that aren’t published by the five major
houses—are up in 2015 in both units and revenue.”

A tiny note of
insight and relevance! But no analysis of why that is and what it means. Wait a
minute, are you saying lower priced book sales are growing in both volume and revenue,
while higher priced ones are shrinking by both measures? Is something going
on here? What might it mean for the industry?

Nah, why discuss
any of that? We know legacy publishes are having a hard time because of the Amazon
reason. Anything else goes in the second-to-last paragraph and merits no discussion
at all.

I’m not sure why Amazon declined to comment on the article. They could
have just said, “Um, we told you so.

The Big Five really painted themselves and
their authors into a corner with agency. They’ve screwed their authors royally for
at least the next two years, just like they’ve screwed themselves.

1) If they keep their ebook prices high:

– Their ebook revenues (and market share)
continue to shrink fast.

– Unable to discount Big Five ebooks, Amazon
discounts Big Five print books even more steeply (as they are now), hastening the
demise of chain brick-and-mortar bookstores that can’t compete at those prices.
The Big Five ends up more reliant on Amazon for the Big Five’s (less-profitable)
paper sales, while the far more profitable ebook market passes them by.

2) But if they lower ebook prices back to
where they were in 2014, during the pre-agency days:

– Maybe the erosion of their ebook sales
slows. But NOW, under agency, those discounts come out of their own pockets (and
those of their authors), instead of Amazon’s. The average discount Amazon was underwriting
on Big Five books was 20-25% pre-agency—that’s a hell of a subsidy, and it’s gone
now. So under agency, the same discounted 2014 ebook consumer prices and sales will
mean 20-25% less revenue for the Big Five than it did in 2015.

– And those lowered consumer ebook prices
will once again accelerate the nationwide reader migration from print to ebooks,
hastening the demise of chain brick-and-mortar bookstores.

What did Schopenhauer
say? “All truth passes through three stages. First, it is ridiculed. Second, it
is violently opposed. Third, it is accepted as being self-evident.”Although if
the Big Five continues to adhere to a high-priced ebook strategy, and continues
to rely on insights as fresh and useful as those in this Wall Street Journal article, the more relevant rubric might be Elisabeth
Kübler-Ross’s anger, denial, bargaining, depression, acceptance.